High-order compact finite difference schemes for option pricing in stochastic volatility models on non-uniform grids

• Autores: Bertram Düring, Michel Fournié, Christof Heuer
• Localización: Journal of computational and applied mathematics, ISSN 0377-0427, Vol. 271, Nº 1, 2014, págs. 247-266
• Idioma: inglés
• Texto completo no disponible (Saber más ...)
• Resumen

  • We derive high-order compact finite difference schemes for option pricing in stochastic volatility models on non-uniform grids. The schemes are fourth-order accurate in space and second-order accurate in time for vanishing correlation. In our numerical study we obtain high-order numerical convergence also for non-zero correlation and non-smooth payoffs which are typical in option pricing. In all numerical experiments a comparative standard second-order discretisation is significantly outperformed.Weconduct a numerical stability study which indicates unconditional stability of the scheme.